Headlines from Reuters
07/05 17:20 INTERVIEW-Royal Numico
buys GNC
By Ilaina Jonas
NEW YORK, July 5 (Reuters) - Over the past 75 years General Nutrition
Companies Inc. <GNCI.O> has become the leader in the U.S. market for
vitamins and nutritional supplements by manufacturing and distributing
products developed by outside research companies.
Across the Atlantic, Dutch company, Royal Numico N.V.'s research facilities
have developed and manufactured infant nutritional products, of which it has a
40 percent market share in Europe. It also produces clinical nutritional
supplements for people fighting illnesses and within the past year has
acquired a small interest in producing vitamins and minerals.
On Monday, the companies said Numico would buy GNC for $25 per share,
or $1.77 billion and assume $760 million in debt, making the merger valued
at $2.5 billion.
The reasoning for the merger is simple: combine Royal Numico's research
and product development pipeline with GNC's manufacturing and marketing
pipeline. Company officials said the union of GNC's distribution and
production brawn with Royal Numico's research brains would produce an
international nutritional Goliath.
"That's the beauty of this," GNC President and Chief Executive William
Watts told Reuters. "It's top line synergies instead of cost cutting. There will
be no layoffs, no reductions."
The move may prompt U.S. pharmaceuticals, who have entered into the
rocketing vitamin and nutritional supplement market but have shunned retail,
to rethink their strategy, said Matthew Patsky, managing director of the
Boston-based investment bank Adams, Harkness & Hill.
"This is the beginning of a heated race for people to get in the race for
franchises," he said. "Watching a major player in Europe has got to heighten
their interest. Maybe the Dutch are seeing something and we're not."
The merger is expected to be completed within five weeks and both boards
have approved the deal. The merger is not expected to face any anti-trust
obstacles, as Numico has no significant presence in the United States,
Watts said.
The companies also said the deal would immediately boost earnings by
about $278.6 million as GNC begins to produce products Numico developed.
With an extensive network of manufacturing and distribution facilities,
Pittsburgh-based GNC has captured 12.9 percent of the $9 billion U.S.
vitamin and nutritional supplement market.
In fiscal 1998, the company reported sales of $1.2 billion.
GNC is recovering from a stock dive during the year that saw the price of its
shares fall from a 52-week high of $32.50 to a low of 9 on Oct. 8, as an surge
of new producers. In March, the company reported fourth-quarter earnings of
$0.31 per share before charges compared with $0.42 per share a year before
and shares again slide to about $10.
Royal Numico, based in Zoetermeer, The Netherlands, has captured 40
percent of the infant nutritional products market in Europe and is the
European leader in clinical nutritional products.
About five years ago, Numico decided it would use the research that came
out of its products developed for its two core businesses for an entrance into
the vitamin and nutritional market -- a market where there is no clear leader.
"That's why we went to the U.S." Albert Eenink, Numico's global director of
research and a member of its executive committee, told Reuters.
Royal Numico's share in the European vitamin and mineral market is about 5
percent and accounted for a small portion of its sales.
Its is developing future products targeted to the athletic and elderly market.
Watts, 46, will remain CEO and president of GNC, and has extended his
2-1/2 year contract an additional year. He also will become part of Numico's
executive committee, a governing board under Numico's president and two
vice presidents. About 90 other GNC senior executives also will be on the
board.
The combined company had a 1998 proforma turnover of about $3 billion and
a workforce of 27,000.
GNC operates 4,203 specialty shops in the United States and about 50 in
the United Kingdom. Its products also are marketed under the name of
PharmAssure, in a deal it half owns with Rite Aid Corp. <RAD.N> The
company also plans to sell its GNC labeled products in its specialty shops
within Rite Aid.
((Ilaina Jonas, New York Newsdesk, 212-859-1610))
COPYRIGHT © 1999 REUTERS LIMITED. ALL RIGHTS RESERVED. |
